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WILL LUXURY BUYERS PAY MORE FOR DIGITAL PRODUCTS THAN PHYSICAL PRODUCTS?



Luxury must be exclusive while Digital makes products, information and knowledge more accessible.  Based on the above definition, Digital would seem to be just a channel or, at best, an add-on and amplification of a product or experience. However, add-ons can deliver significant value or reach entirely new groups of customers.  Tiffany's engagement ring finder app is a case in point: it allows users to try on their engagement rings using augmented reality in the app before entering a real store.  Louis Vuitton has collections of accessories that League of Legends players can purchase online and then collect in stores.  Game company Epic Games has partnered with luxury brands as Balenciaga and Louis Vuitton.

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Luxury must be exclusive while Digital makes products, information and knowledge more accessible.  Based on the above definition, Digital would seem to be just a channel or, at best, an add-on and amplification of a product or experience. However, add-ons can deliver significant value or reach entirely new groups of customers.  Tiffany's engagement ring finder app is a case in point: it allows users to try on their engagement rings using augmented reality in the app before entering a real store.  Louis Vuitton has collections of accessories that League of Legends players can purchase online and then collect in stores.  Game company Epic Games has partnered with luxury brands as Balenciaga and Louis Vuitton.

 Will luxury buyers pay more for digital products than physical products?

Will luxury buyers pay more for digital products than physical products? / ph: Louis Vuitton


NFT allows luxury brands to create completely personalized fashion items: Overpriced's first NFT virtual hoodie sold on the BlockParty platform for $26,000.  With technology and flexibility, NFT product owners can claim production and own a physical version of the product, avoiding the inventory problems that are common in the fashion industry.

But scarcity and personalization are not enough.  Luxury goods must be more than scarce and digital can do that too. Investment bank Morgan Stanley estimates that NFT could account for 10% of the luxury goods market by 2030 - A $50 billion opportunity.

In the digital world, we can express ourselves the way we like and change those traits very quickly.  Several luxury brands have spotted this opportunity: Balenciaga, for example, has developed a virtual fashion collection in the Fortnite RPG - players can purchase branded virtual apparel (also known as  “skin) for their in-game avatar.  Burberry is also testing NFT in the game.

Not only in games, online communities like Bored Ape Yacht Club or Pudgy Penguins are gaining popularity among digital collectors.  Memberships can be purchased with images bearing the logos of the community associated with the NFT.  According to Chainalysis' NFT Market Report 2021, the most popular NFTs in 2021 are community membership tokens.  In August, Mutant Ape Yacht Club sold 10,000 NFT members in just one hour, with a total transaction value of $96 million.

Furthermore, digital goods and services sold in games and communities are often very expensive - bringing us to another important luxury component.

In December 2021, one of four NFT-exclusive items was sold on Mutant Ape Yacht Club for $3.6 million.  This quickly attracted the attention of luxury brands.  The recent sale of nine NFTs by Dolce & Gabbana for $5.7 million is an outstanding example of NFT's potential. Karl Lagerfeld’s 77 limited edition digital pieces worth €177 have already sold out on The Dematerialized platform in just 33 seconds.

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In fact, some luxury buyers are willing to pay more for digital products than for physical products.  Recently, a limited digital edition of the Gucci Dionysus handbag sold for $4,000 on the secondary market - well above the actual price of this bag.  Unlike in the real world, luxury brands can get a commission when a product is resold in the future thanks to the digital traceability of transactions, opening a new route to profitability.  Balenciaga has even established its own sales division for digital goods in the metaverse.  The profit margins for these products are also high, as the cost for digital is much lower than for physical products. Furthermore, luxury brands also do not have to spend money on inventory.

source: HBR

WILL LUXURY BUYERS PAY MORE FOR DIGITAL PRODUCTS THAN PHYSICAL PRODUCTS?

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